Application outlines L+M's plans to fund purchase of Westerly Hospital
If Rhode Island state regulators approve the deal, Lawrence + Memorial Hospital would combine $6 million of its own funds with a $20 million bridge loan to purchase The Westerly Hospital.
The remaining $43 million of the agreed purchase price of $69 million would come from L+M's commitment to invest $30 million in capital improvements to the 125-bed hospital over the next five years and $6.5 million to fund a turnaround plan over the first two years. It would also pay $68,000 per month for Westerly Hospital's lease obligations for the North Stonington Health Center and $6 million to settle the receivership case being overseen by the court-appointed special master, attorney Mark Russo. The total value of the buildings, equipment and other physical assets of Westerly Hospital is $66.5 million.
These and other details of L+M's offer are included in the 832-page application now being reviewed by the Rhode Island Department of Health and Attorney General's Office. The application, submitted in November, was declared complete Tuesday, beginning the 90-day process toward a decision about whether the sale should be approved.
Westerly Hospital entered receivership in December 2011 after ending fiscal 2011 with $5.7 million in expenses over revenues, the latest of several years of operating deficits. L+M's offer was approved in August by a judge overseeing the receivership, pending approval by Rhode Island health care regulators. The initial $26 million from L+M would be used to pay Westerly Hospital creditors through the receivership process. As part of the deal, L+M also agreed to assume $22 million in other Westerly Hospital debts.
In the application, L+M states that commitments for the bridge loan have been made by Bank of America and Washington Trust, and that payments on the two-year loan at 9.6 percent interest would be about $16,000 per month. In the year after the closing, L+M said, it would seek to acquire tax-exempt bonds or long-term commercial loans to fund the purchase.
The application includes several years of financial statements for both hospitals, the agreement reached between L+M and the Westerly Hospital nurses and allied professionals union, and the charity care policies of both hospitals.
Also in the application:
• L+M commits to maintaining Westerly Hospital as an acute care, community hospital for at least five years, and to continue all clinical services provided at the time of closing for at least two years, with the exception of obstetrics services.
• Russo has decided that it is not feasible to continue obstetrics services after June 1, but "specific plans associated with the closure of obstetrics services ... are still being developed."
• L+M will undertake a community fundraising campaign for Westerly Hospital.
• A new board of directors of Westerly Hospital comprised of residents of its service area will be established, and Westerly area residents will be named to the L+M board.
• L+M provided information about a pending consent order it is under with the Connecticut Department of Public Health. The order, which is set to expire March 14, required a consultant to evaluate physician consultations, anesthesia services, inpatient pediatric care and nursing services, among other steps. It was issued in March 2011 after state health inspectors found various violations of health care regulations.
• L+M also provided information about a $3.2 million budget gap in fiscal 2012 and resulting layoffs this fall.
• L&M is projecting Westerly Hospital's operating margin will be $1.7 million on revenues of $84.7 million over expenses of $83 million in fiscal 2013, increasing by fiscal 2015 to a $7 million margin on revenues of $86.6 million over $79.6 million in expenses. That would be achieved through significant reductions in payroll, benefits, debt and supply expenses compared to the financial structure before Westerly Hospital entered receivership.
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